How do exchange rates affect your life abroad?

How exchange rates effect your life abroad and the key considerations when managing your finances as an expat.

An estimated 1.3 million people born in the UK currently live in other EU countries, with 900,000 of these classed as long-term residents. There are other British expats living outside of the European Union too, with Dubai, Australia and Saudi Arabia among the most popular destinations.

There are several factors that impact on the lives of British expats, with constantly changing exchange rates among the most seminal.

In this post, we’ll look at how exchange rates effect your life abroad and the key considerations when managing your finances as an expat.

1. The cost of living

As a general rule, a weak domestic currency makes imports cheaper, which in turn reduces inflation and lowers the cost of living.

So if you’re living abroad in a country that has a weak or under-performing currency, you’ll benefit from more competitive pricing on foods, goods and services that are imported from overseas.

Conversely, a weak currency will send import prices soaring, which arguably lowers the standard of living while also increasing the cost of most food and groceries. Long-term inflation can set in as a result of this, and in instances where this is higher than the national wage expats can struggle to save or reduce their debts.

2. The impact on jobs and the labour market

If you reside in a nation that boasts a strong domestic currency, this may not be good for local businesses or the labour market as a whole.

The reason for this is simple; as a strong currency makes domestic products more expensive in relation to foreign alternatives, creating a less competitive marketplace that can be a drag on economic growth.

Not only can this have an organic impact on the labour market by restricting growth and demand but may also encourage businesses to outsource specific jobs overseas.

This is an important consideration, particularly if you’re of working age and looking to retain your role or look for new opportunities.

3. How exchange rates impact on investments

However, expats may see the value of domestic investments fluctuate according to the strength of the local currency and fluctuating exchange rates. A strong currency can both help and hinder the value of stocks, for example, as in some instances this can be indicative of strong demand for domestic assets and shares.

However, a strong currency can also make domestic stock options more expensive, deterring investors and causing trading volumes to fall in the process. So if you’re an expat who likes to invest in domestic assets, you’ll need to do your research and manage your portfolio with care.